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Shared Services – Drivers, Challenges and Options

25/01/10

The term “shared services” is one which is capable of as many different interpretations as such old favourites as “partnership” and “strategy”.  It is increasingly being used in the context of local authorities and health bodies to refer to collaboration between different autonomous public sector organisations which is designed to improve efficiency/reduce costs/fight off enforced restructuring.

It is also often used in the context of authorities collaborating with each other in order to procure a private sector partner for the provision of some services through outsourcing or the delivery of asset schemes. To this extent the term “shared services” overlaps substantially with outsourcing/procurement (the subject of a further Alert in this series).

This particular paper will concentrate on the collaboration between bodies in the public sector to deliver services more effectively.  These can include front line services to the public but also (and frequently) refer to the sharing of back office functions such as the provision of payroll services, HR advice and support, facilities management, ICT and finance systems.  Indeed in the health sector, the term “shared services” is almost exclusively used to describe arrangements for these back office type services.

Drivers for Sharing

A number of the drivers which will be the catalyst for organisations exploring shared services are applicable across all parts of the public sector.  These include:

1 Budget and Efficiency Pressures

The Operational Efficiency Programme sets out the clear objective that by 2013/14 there will have been £4.1billion savings on back office operations across the public sector and £3.2billion savings in ICT alone.  The extended collaborative procurement (which involves the working together of public sector bodies to buy goods and services more effectively with the private sector or with each other) is aimed to achieve an additional £6.1billion worth of savings.

The identification of specific anticipated sums which the public sector is seen as capable of achieving, coupled with the huge pressures on the incoming government (of whatever political complexion) to work towards balancing the books, makes it inevitable that revenue and capital settlements to public sector bodies will be predicated on these savings being delivered.  There will be no alternative but to exhaust all potential collaborative arrangements as a contributor to achieving the likely new financial target.

2 Critical Mass/Capacity

The increasing pressures on organisations to deliver services cost effectively and to deal with decreasing budgets, mean that organisations will have to be slick, efficient, continue to employ staff of high calibre to deal with this challenging agenda and have the critical mass to deal with the challenging agenda.  This represents a challenge particularly to small district councils and to small health bodies and acts as a driver to bring together groups of specialists and systems to cope more easily across a number of organisations.

In addition to generic drivers which are forcing organisations to review collaboration across boundaries, there are a number of sector specific initiatives/requirements which will impact on health and local government respectively.

In the health sector, Transforming Community Services (TCS) means that many PCTs will be reducing their core activity to commissioning only.  A number of PCTs are presently host organisations for shared service agencies and different ways of delivering may have to be found to deal with these changes.

In addition, the involvement of Foundation Trusts in shared services agencies raises some issues of governance/delegation powers which will need to be addressed.  The “necessity not nicety” policy is also bringing greater pressure to bear on competing for back office services which traditionally Trusts have effectively treated as an in-house service albeit provided through a shared service agency.

In local government, the Pathfinder two tier projects in a number of areas in England have concentrated on collaboration across County/District boundaries. In addition, the increasing formalisation of local area agreements and local strategic partnerships mean that authorities have to collaborate to sign off on agreed objectives and priorities across their area.  The introduction of multi-area agreements across two or more top tier or unitary councils, their partners in government, means that sharing services on a sub regional basis is also moving ahead at pace.

Examples are also developing of shared services across different parts of the public sector including active exploration of integration of local authority and health services in certain areas with joint Chief Executive appointments in co-terminous local authorities and PCTs.

Areas of Service

The types of service area which lend themselves to shared service arrangements (and on which Bevan Brittan are currently advising) include:

“Back Office Services”

  • Payroll
  • ICT systems and support
  • HR advice and transactional services
  • Legal services
  • Facilities Management
  • Procurement
  • Financial transactions
  • Audit
  • Architectural Services
  • Highway Design

Services to the public (in the local authority context)

  • Customer call centres and one stop shops
  • Trading Standards
  • CCTV
  • Planning - Development Control
  • Tourist Information

Challenges and Solutions

Public sector organisations working together to provide and deliver services more effectively seems, at one level, a principle which will readily and easily be embraced and delivered.  However, there are inevitably a range of challenges to the success of such projects and our work across many such schemes has highlighted a number of these, including:

  1. Cultural differences and approach between different organisations – organisations even within the same sector can have different ways of doing things and different approaches.
  2. Political differences – in local authorities the political dimension means that adjoining councils can have very different priorities and objectives so raising barriers to what could otherwise be sensible practical shared services options. 
  3. Tenacious emphasis on the autonomy of individual organisations and a fear that shared services will jeopardise this independence.
  4. The fear that by demonstrating services can be provided more effectively across a number of organisations that this will provide a platform for forced restructuring and the creation of larger bodies so losing local presence and identify.
  5. Powers and governance arrangements which vary from body to body even within the same sector and vary markedly across the health and local government landscape.
  6. The staffing and pension issues which can inhibit the ease of transfer and the flexibility of the use of staff across different organisations.
  7. Procurement – the fact that the provision of services within the health market or within the local government family can still require an examination of the application of EU Procurement Law is frequently overlooked.

Having set out some of the challenges and potential barriers to shared services / collaboration, it is certainly the case that many of these are more perceived than real and with the determination to achieve all the benefits which may flow from a shared services project, many of these can be overcome.

One of the key issues for early consideration is the type of shared service which is being considered and the complexity/formality of any proposed solution.  There are a range of types of joint working which come under the generic title of “shared services”, such as:

  1. Informal collaboration between organisations where, for example, adjoining bodies use staff flexibly and informally to help each other out at times of peak workload on a reciprocal basis.
  2. The development of centres of excellence across a particular area or sub region.  This can arise where an individual organisation may identify that they cannot each afford a specialist in a certain discipline and combine jointly to fund a post or team which develops a centre of excellence reputation across the area.  This can provide enhanced recruitment and retention opportunities for skilled and experienced staff.
  3. Co-location of teams – simple co-location of groups of staff in one office/service centre even where staff remain employed by their own organisation, can bring savings in terms of administrative and support costs as well as enhanced joined up service provision to service users.
  4. Contractual provision of services – where Authorities or Trusts provide services on a formal contractual basis to each other, perhaps at a non-commercial value simply to meet core costs if this is seen as an overall shared services agenda.
  5. The establishment of a separate entity – an arms-length wholly owned company or joint venture arrangement which provides a neutral entity which can supply services back into the parent organisations (and in the case of authorities can also then benefit from the enhanced trading powers with the private sector).

Effective operation of shared services across public bodies requires careful consideration of the best model/vehicle to deliver the designed aim and advice on the issues and considerations which need addressing in order to achieve what clearly can be huge advantages in service delivery and cost.

 

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Disclaimer

This update is intended to give general information about legal topics and is not intended to apply to specific circumstances. Its contents should not, therefore, be regarded as constituting legal advice and should not be relied on as such. In relation to any particular problem that you may have you are advised to seek specific legal advice.

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